The Supreme Court spoke in favor of paying interest to the arbitration manager for repaying the claims of the bankrupt’s creditors

The Supreme Court of the Russian Federation (SC) spoke in favor of paying the arbitration manager (AM) a percentage fee for repaying the claims of the bankrupt’s creditors. The importance of the decision is that the managers were, in essence, given the chance to receive interest simply for good work. Previously, judicial practice was largely based on the fact that only companies that took “exceptional measures” and made extra efforts to pay creditors could qualify for such an incentive payment, although the law does not establish such conditions.

The Supreme Court considered the issue of paying interest to the bankruptcy trustee. Art. 20.6 of the insolvency law provides for a fixed remuneration for the manager (30 thousand rubles per month in monitoring and bankruptcy proceedings), as well as an incentive payment to him in the form of interest (3–7%) for repaying the bankrupt’s registered debts. In practice, disputes often arise about the latter. Thus, in the bankruptcy case of Plastic Surgery Clinic Assol LLC, its manager Natalya Orlova asked the court to set her a percentage fee of 0.93 million rubles. She indicated that she had paid off the register by 71.43%, paying creditors 15.5 million rubles, for which she was entitled to 6% of this amount.

Arbitration courts of three instances rejected AU’s request. The courts noted that as a result of the bankruptcy, the debtor did not restore solvency, and the repayment of debts, in their opinion, “is not conditional on the bankruptcy trustee taking any exceptional measures to replenish the bankruptcy estate.” Also, as stated in the judicial acts, the “significant contribution” of the AU to achieving the goals of the bankruptcy procedure has not been proven. The appeal added that “the sale of property is an ordinary event,” and 29% of the bankrupt’s debts were repaid by a third party.

Natalya Orlova succeeded in transferring the case to the Economic College of the Supreme Court, insisting on her right to receive interest. Her complaint noted that the third party paid off the bankrupt’s debts already when there were enough funds in the bankruptcy estate to pay all creditors. Based on the results of the consideration of the dispute, the economic board overturned the court decisions.

The Supreme Court explained that the AU cannot claim payment of interest if it did not carry out any activities included in its responsibilities in the case, and the repayment of the bankrupt’s obligations by a third party “took place without any influence and participation of the manager.” However, in this case, the AU referred to the fact that it was his actions that led to such a significant satisfaction of the creditors’ claims and “the accumulation of funds in the debtor’s account” sufficient to fully repay the debts, the board’s ruling emphasizes. “The refusal of the bankruptcy trustee to collect an amount in excess of the fixed remuneration in such a situation is tantamount to a refusal to collect such remuneration in favor of the debtor’s manager, who is unable to satisfy all the creditors’ demands upon completion of the bankruptcy proceedings, which leads to inequality of persons performing identical work,” the Supreme Court emphasized. The case was sent for a new trial at first instance to verify the arguments regarding the amount of interest.

The head of the council of the Union of Autonomous Institution “National Center for Restructuring and Bankruptcy” Valeria Gerasimenko notes that according to the law, the remuneration of the Autonomous Institution has not increased since 2008, and in judicial practice there has been a trend towards its reduction. Thus, compensation amounts were removed from the calculation of interest, as well as taxes that must be paid before the money is distributed to creditors, which reduced the basis for calculating remuneration, she lists. In addition, despite the fact that the law does not contain additional conditions for receiving interest other than paying off the bankrupt’s debts, the courts often reduce the remuneration of the bankrupt, she clarifies. “If a reduction in interest for violations on the part of the manager seems justified, then there are questions about the justification for reducing remuneration due to the incomparability of the volume of work of the management company, and not everything is so simple,” says Forward Legal lawyer Danil Bukharin.

In addition, Valery Zinchenko, senior partner at Pen & Paper, points out that there are situations when the amount of interest can reach hundreds of millions of rubles when repaying billions of debts due to favorable conditions, and not the actions of the manager. For example, when the debtor initially had significant assets. And sometimes all the procedural work (challenging transactions, bringing to subsidiary liability, etc.) that led to the repayment of debts was done by the creditors themselves, and in this case the AU has no right to count on remuneration, says Oleg Permyakov, partner of the company Rustam Kurmaev and Partners .

Considering that the contribution of the AC from case to case can vary greatly, according to Mr. Zinchenko, it is necessary to change the procedure for calculating interest in the law, establishing additional criteria for receiving incentive remuneration. Now, the lawyer clarifies, these criteria have to be formulated by the Supreme Court, which is why “the pendulum swings one way or the other,” as was the case with subsidiary liability. Thus, the latest positions of the Supreme Court specifically required the AC to make maximum efforts and take exceptional measures in order to earn the right to interest.

Mr. Permyakov sees in the new position of the Supreme Court “a search for a reasonable balance in the issue of determining incentive remuneration.” This decision can be considered “a positive signal for bona fide insurance companies, which does not allow the courts to completely arbitrarily reduce the amount of remuneration established by law,” believes Mr. Zinchenko. Forward Legal lawyer Danil Bukharin also believes that this position “gives hope of reversing the current trend.” However, Ms. Gerasimenko is not so optimistic: “The trend towards reducing the amount of the AU remuneration is obvious, and, unfortunately, it will continue.”

Anna Zanina